USA/FRANCE: Stocks tumble after French bank move

The U.S. stock markets fell sharply on Thursday with the Dow closing with its second biggest decline of the yearU.S. stocks tumbled on Thursday (August 9), with the Dow and S&P down nearly 3 percent, after French bank BNP froze three funds that invested in U.S. subprime mortgages, prompting central banks to take steps to calm investors. Evidence the U.S. mortgage market crisis was having a global impact and spreading to other markets hammered financial stocks. Goldman Sachs Group dropped nearly 6 percent after the Wall Street Journal reported a second fund managed by the investment bank was under pressure to sell assets after falling in value. The S&P financial index fell 3.8 percent and the sector was one of the biggest drags on the S&P "Investors are driving up the cost of capital around the world, and that could potentially hurt corporate profits down the road so we're seeing stock markets pull back," said Alec Young, an equity strategist for Standard & Poor's in New York. Yet despite the severity of the recent decline in the stock market, Young says investors should stay the course. "We think this is likely to be more of a correction than a new bear market and we would recommend individual investors sit tight and ride this out," he added. The Dow Jones industrial average sank 387.18 points, or 2.83 percent, to 13,270.68. The Standard & Poor's 500 Index slid 44.40 points, or 2.96 percent, to 1,453.09. It was the worst percentage drop for both indexes since the Feb. 27 sell-off. The Nasdaq Composite Index fell 56.49 points, or 2.16 percent, to 2,556.49. General Electric Co. shares suffered their worst percentage decline in 18 months, while the stock of Wal-Mart Stores Inc. had its biggest fall in four years. GE fell 3.8 percent to $38.94 and Wal-Mart shed 4.1 percent to $46.45, both on the New York Stock Exchange. Both are Dow components. The European Central Bank injected a record $130 billion into the banking system to help calm jittery markets after BNP Paribas barred investors from redeeming 1.6 billion euros ($2.2 billion) worth of funds, blaming the conditions in the subprime mortgage market. Trading was extremely volatile, with the Nasdaq briefly turning positive. All three indexes added sharply to their losses in the last few minutes of trading. Before Thursday's losses, Wall Street had been on a three-day winning streak fueled in part by the Federal Reserve's statement on Tuesday that the economy was likely to keep growing despite turmoil in credit markets.

ITN Source | August 9, 2007

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